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Obama meets with Congressional leaders as shutdown drags on

CLOSED FOR BUSINESS: The federal government shutdown has entered its second day. Photo: Reuters

By Mark Felsenthal and Richard Cowan

WASHINGTON (Reuters) – President Barack Obama scrapped part of a long-planned trip to Asia and planned to meet with congressional leaders on Wednesday as a U.S. government shutdown entered a second day with no end in sight.

The impasse has raised questions about Washington’s ability to carry out its most essential duties. Though a short-term shutdown would do relatively little damage to the world’s largest economy, global markets could be roiled if Congress also fails to raise the debt limit before borrowing authority runs out in coming weeks.

The partial shutdown, which took effect at midnight on Monday after Republicans and Democrats were unable to agree on a short-term measure to keep the government operating, has thrown hundreds of thousands of federal employees out of work, shuttered landmarks like the Grand Canyon and prevented some cancer patients from receiving cutting-edge treatment.

The U.S. Army’s top general said it was significantly harming day-to-day operations, and intelligence leaders say it is undermining their ability to monitor threats.

The setback to the Asia trip, designed to reinforce U.S. commitment to the region, is the first obvious international consequence of the troubles in Washington.

Obama scuttled two stops on a planned four-country tour and left visits to two other countries up in the air. He was due to leave on Saturday and return a week later.

The president told his counterparts in Malaysia and the Philippines he would not be able to meet them as planned and a White House official said the president is weighing whether to attend diplomatic summits in Indonesia and Brunei.

Obama plans to meet at the White House at 5:30 p.m. (2130 GMT) with the four top leaders in Congress – House of Representatives Speaker John Boehner, House Democratic Leader Nancy Pelosi, Senate Democratic Leader Harry Reid and Senate Republican Leader Mitch McConnell.

Boehner’s Republicans have sought to tie continued government funding to measures that would undermine Obama’s signature Affordable Care Act – an approach Obama says is a nonstarter. The controversial healthcare law passed a key milestone on Tuesday when it began signing up uninsured Americans for subsidized health coverage.

“We’re pleased the president finally recognizes that his refusal to negotiate is indefensible,” Boehner spokesman Brendan Buck said. “It’s unclear why we’d be having this meeting if it’s not meant to be a start to serious talks between the two parties.”

Obama will insist that Congress reopen the government and raise the debt ceiling without conditions, a White House official said. A Senate Democratic aide said the meeting is unlikely to bring any breakthroughs.

The fight between Obama’s Democrats and the Republicans over the government’s borrowing power is rapidly merging with the standoff over everyday funding. Treasury Secretary Jack Lew has said the United States will exhaust its borrowing authority no later than October 17.

The government could have difficulty paying pension checks, interest charges and other bills after that point.

Some Republicans see that debt limit vote as another opportunity to undercut Obama’s healthcare law or extract other concessions.

There were few signs that the second day of the shutdown was beginning to put pressure on Democratic and Republican lawmakers to work out a deal.

Though some moderate Republicans have begun to question their party’s strategy, Boehner so far has kept them united behind a plan to offer a series of small bills that would re-open select parts of the government.

The House is expected to vote later on Wednesday and Thursday on measures that would fund veterans care, medical research, national parks, the District of Columbia and the Army Reserve, a House Republican aide said. The measures are likely to be defeated in the Democratic-controlled Senate, and Obama said he would veto them if they reached his desk.

A Reuters/Ipsos poll indicated that 24 percent of Americans blamed Republicans for the shutdown, while 19 percent blamed Obama or Democrats. Another 46 percent said everyone was to blame.

MARKET REACTION

Stock investors on Wednesday appeared to show growing anxiety over the standoff after taking the news in stride on Tuesday. The Standard & Poor’s 500 Index .SPX was down 0.3 percent and the Nasdaq Composite Index .IXIC was down 0.2 percent.

The U.S. Treasury has also been forced to pay the highest interest rate in about 10 months on its short-term debt as many investors avoid government securities that would be due later this month, when the government is due to exhaust its borrowing capacity.

A short-term shutdown would slow U.S. economic growth by about 0.2 percentage points, Goldman Sachs said on Wednesday, but a weeks-long disruption could weigh more heavily – 0.4 percentage points – as furloughed workers scale back personal spending.

The last shutdown in 1995 and 1996 cost taxpayers $1.4 billion, according to congressional researchers.

Representative Steny Hoyer, the No. 2 House Democrat, saw potential for a plan that could buy a “cooling off” period of about six weeks.

“We may be getting to a place where there’s going to be enough rational Republicans to join with the Democrats and pass … a continuing resolution which will fund government, get us open,” he said on CNN.